The Problem with Discounting

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Salespeople often focus heavily on discounting. They might argue that their superiors are equally fixated on securing deals at any cost, prompting the use of discounts to create urgency.

But does discounting actually work? While discounts have their rightful place in business, improper use can lead to issues.

Consider the well-known UK sofa store, DFS, which has been running a “closing down” sale for over 30 years. This situation is met with humour and mistrust in equal measures. This approach is transparent: we inflate our prices, offer a 75% discount, and both parties leave the exchange satisfied, right? The term “mistrust” frequently surfaces in discussions about discounting. Contrary to the salesperson’s belief that discounts build trust, they often do the opposite.

Above: There is an assumption that value simply sits in price, as you can see above value takes many forms in the eyes of the buyer

Let’s look at discounting through the lens of a typical B2B buyer and this will help us understand that it isn’t always a valuable tactic and can in some cases create more problems.

The Buying Process

As we have often mentioned, purchasing is becoming increasingly complicated and challenging for many businesses. This has led to a more complex and prolonged buying process. Additionally, the number of stakeholders involved continues to rise.

Imagine someone is interested in your proposition and willing to invest time in exploring your solution. They then face the daunting task of navigating the complex buying process. So, what do we do to assist? Offer a discount if they buy it today!

However, as you might expect, they can’t make the purchase today. There’s a significant amount of work they need to do to reach that point. In fact, even if you were offering it for free, they still couldn’t buy it today.

We may think we are doing them a favour, but we are actually making it much harder for them and revealing the very trait buyers dislike in sellers—self-interest.

Devaluing our Product

Contrary to popular belief, we are often drawn to higher price points—it may seem counterintuitive, but it’s true. Now, imagine we have spent considerable time building value in the buyer’s eyes, and they are convinced of the product’s worth at the given price. At the last minute, we lower the price just to close the deal. From the buyer’s perspective, their initial thoughts might be, “What is the true value of this product?” or “Wait a minute, you were willing to sell this to me at full price yesterday, can I trust you?”

We often assume that price is the primary issue, even though that is rarely the case. When a customer initiates a negotiation, it provides us with insights into their position, but we cannot assume they are solely motivated by price or that all prospects are price-sensitive.

Competitor Leveraging

If you are in a competitive situation and the prospect mentions, “XYZ is offering a discount,” our instinctive reaction might be to immediately match that price point and offer a discount as well.

Instead, take a different approach and respond with a single, thought-provoking question: “Why do you think they are giving you that discount?”

This question encourages the prospect to consider the reasons behind your competitor’s pricing strategy. It prompts them to think critically about whether the discount reflects a potential compromise in quality, a lack of confidence in their product, or perhaps an attempt to quickly close a deal due to underlying issues. By steering the conversation this way, you can highlight the value and strengths of your offering without immediately lowering your price. This strategy not only positions you as a confident and value-driven seller but also helps the prospect make a more informed decision based on overall value rather than just price.

Getting it right

Again, discounting isn’t inherently negative and can be highly valuable for both acquiring new business and driving expansion. However, it should be approached as a strategic decision, not just a quick tactic.

To effectively implement a discounting strategy, several key components must be in place:

Discounting Authority Matrix: Establish a clear discounting authority matrix. This defines who within your organization has the authority to approve discounts at various levels. It ensures that discounts are not given haphazardly and that there is a structured process in place. This matrix helps maintain control over profit margins and ensures discounts are used strategically.

Alignment Between Sales Process and Discounting Strategy: Ensure that your discounting strategy is closely aligned with your overall sales process. This means integrating discounting into your sales planning, training, and execution. Sales teams should understand when and how to use discounts effectively, aligning with the broader goals of the business. This alignment helps maintain consistency and reinforces the value proposition of your products or services.

Clearly Defined Negotiation Variables: Price is not the only factor in negotiations. There are various items or services we can offer that provide significant value to the prospect and benefit us as well:

By approaching discounting as a strategic tool rather than a reactive measure, you can leverage it to drive growth while maintaining the perceived value and integrity of your offerings.